In a recent Ontario Superior Court decision, the court once
again had to grapple with the question of whether an employer is
entitled to deduct STD and LTD benefits from wrongful dismissal
notice award damages. In considering this issue, the courts
typically examine the intention of the parties, the terms of the
employment contract, and the terms of the insurance benefit
In Diamantopoulous v. KPMG LLP ("KPMG"), 2014 ONSC 1038, the court
confirmed that these contextual factors should be considered in
assessing whether STD and LTD benefits should be deducted from
wrongful dismissal damages, and specifically relied on the leading
Supreme Court of Canada decision, Sylvester v. British
Columbia,  S.C.J. No. 58 to support these
In the specific facts of KPMG, the plaintiff commenced
a sick leave for depression and anxiety following a disciplinary
meeting regarding her conduct and attitude towards a senior partner
of the firm. When her application for LTD benefits was denied
on two occasions, the employer contacted her to arrange for her
return to work. After several unsuccessful attempts to
arrange a meeting to discuss her return to work, the plaintiff
advised her employer that she was diagnosed with breast cancer and
was undergoing treatment. Shortly thereafter, the
plaintiff's employment was terminated by KPMG on a without
Following her termination, the plaintiff's lawyer requested
KPMG to suspend the termination pending a decision regarding the
plaintiff's application for LTD benefits in light of her new
medical condition (breast cancer). The company agreed, and
her severance package was modified to continue her salary and
benefits until the end of the qualifying period to allow her to
make an LTD claim due to her breast cancer treatment. As a
result of receiving medical documentation from her medical
practitioner, additional STD benefits based on the breast cancer
diagnosis and treatment were paid to the plaintiff retroactively to
June 1, 2000. Additionally, the plaintiff's claim for LTD
benefits was subsequently approved on September 28, 2000 and
continued until March 18, 2002 due to the breast cancer treatment
she was undergoing.
The plaintiff continued to pursue her claim for LTD benefits
from the insurer for the period from March 17, 2000 to September
27, 2000, during which time she was in receipt of receiving full
salary or STD benefits from KPMG. Her claim and all appeals
for this time period were unsuccessful.
One of the central issues before the Court was whether the STD
and LTD benefits the plaintiff received should be deducted from her
wrongful dismissal damages. Relying on the principles
set forth in Sylvester, the court considered the following
factors when it found that the STD benefits must be deducted from
the notice award:
The benefits were provided as a salary continuance, and the
benefits policy materials described STD benefits as "salary
The plaintiff had not contributed directly to the cost of the
The costs of the benefits were absorbed by KPMG as a form of
With respect to the issue of whether LTD benefits can be
deducted from the notice award, the court came to an opposite
conclusion for the following reasons:
LTD payments were in the nature of "disability
benefits", not salary or income replacement;
The LTD payments were more in the form of private insurance
The plaintiff regularly made financial contributions towards
cost of the premiums of the LTD plan; and
The payments were made by the insurance provider directly to
Based on the foregoing factors, the court found that it was the
intention of the parties to treat the LTD payments as disability
benefits, not salary or income replacement. Therefore, these
payments could not be deducted from the notice award she was
otherwise entitled to.
This decision serves as a useful reminder to employers that
courts will take a contextual approach to determine what the
intention of the parties are, and assess the language of employment
agreement, and insurance policies to determine whether STD or LTD
benefits should be deducted from a notice award.
If your organization is faced with an issue of this nature, the
lawyers at CCP can assist in navigating your organization through
this complex area of the law.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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